Question

#1) Mrs. Lucas owns a number of properties in . She also has a large investment portfolio which contains a variety of shares in Canadian companies. In the current year, she is considering selling one of her properties (land and building) and shares in Beta Inc. Mrs. Lucas would like you to advise her on the tax consequences of these sales. The information regarding the property and shares are below.

Property – Mrs. Lucas has land and a building that she is willing to sell. The original cost of the land was $90,000 and can be sold at $140,000. The building’s original cost was $100,000 and can be sold for $105,000.

Shares – The Beta Inc. shares were purchased for $65,000 in 2005, but have been dropping in value the last few years. They are currently worth $30,000. Mrs. Taylor believes the value of the shares will continue to drop and wishes to sell soon.

REQUIRED:

A) Advise Mrs. Lucas of the tax consequences of selling the land, building, and shares this year. Show all calculations.

B) If Mrs. Lucas had a Net Capital Loss of $12,000 from 2014, explain what she can do on her 2017 tax return.

Answer 1

A) Here,Mrs. Lucas planning to sell Land& Building and shares in Beta Inc.Any gain on sale of assets will attract tax under the head INCOME FROM CAPITAL GAIN.

CAPITAL GAIN=Sale consideration-Cost of acquisition

Sale of Land & Building

1) Cost of land =$90,000

Selling price = $140,000

Short term capital gain = $140,000-90,000=$50,000

2) Cost of Building = $100,000

Selling price = $105,000

Short term capital gain = $105,000-$100,000=5,000

(Assumed it is short term because the year of purachse and transfer is not given)

Therefore Capital gain on transfer of Land & building of Mrs. Lucas for the year ending is $55,000.it should be included in the total income of Mrs. Lucas for the year ending and taxed according to the tax brackets.

Sale of shares in Beta Inc.

Cost of acquisition of shares= $65,000

Current market price of shares =$30,000

Loss on sale of shares in Beta Inc. =$65,000-$30,000=$35,000

Mrs. Lucas can set off the loss of $35,000 against any Long term capital gain.

B) Capital loss is a loss on sale of securities or investments.It can be set off against Capital gains.Here she has a capital loss of $12,000 from 2014.An amount of $3,000 can be deducted in year 2017 ,and balance $ 9,000 should be carry forward to the next years.she can deduct a $3,000 of loss every year until the entire amount of capital loss is deducted.